Owner-Operator Independent Drivers Ass'n v. Pacific Financial Ass'n

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION, a
Missouri corporation; THOMAS and KAREN MOORE, a California
partnership, dba TOM MOORE TRANSPORTATION; JASMINE, LLC, a
Missouri limited liability company; and K&S TRUCKING LLC, a
Wyoming limited liability company, on behalf of themselves and others
similarly situated, Plaintiffs/Appellants,
v.
PACIFIC FINANCIAL ASSOCIATION, INC., a California corporation;
and FEDERAL SERVICE CORPORATION, an Arizona corporation,
Defendants/Appellees.
No. 1 CA-CV 14-0567
FILED 1-3-17
Appeal from the Superior Court in Maricopa County
No. CV2013-000615
The Honorable J. Richard Gama, Judge Retired
AFFIRMED IN PART, REVERSED IN PART AND REMANDED
COUNSEL
Campbell Law Group Chartered, Phoenix
By Brian J. Campbell
Counsel for Plaintiffs/Appellants
The Cullen Law Firm, PLLC, Washington, D.C.
By Daniel E. Cohen
Counsel Pro Hac Vice for Plaintiffs/Appellants
Stinson Leonard Street LLP, Phoenix
By Lonnie J. Williams, Jr.
Counsel for Defendants/Appellees
OPINION
Presiding Judge Donn Kessler delivered the opinion of the Court, in which
Judge Patricia K. Norris and Judge Andrew W. Gould joined.
K E S S L E R, Judge:
¶1 Appellants Owner-Operator Independent Drivers
Association (“Association”) and several of its members (collectively,
“Owner-Operator”) appeal the superior court’s dismissal of their complaint
pursuant to Arizona Rules of Civil Procedure (“Rule”) 12(b)(6), refusal to
allow them to amend their complaint, and award of attorneys’ fees. For the
following reasons, we affirm the dismissal of Owner-Operator’s statutory
claims; reverse and remand to allow Owner-Operator to assert common
law claims of breach of fiduciary duty and negligence; and vacate the award
of attorneys’ fees.
FACTUAL AND PROCEDURAL HISTORY
¶2 Appellants, with the exception of the Association, are motor
carriers that hauled freight pursuant to contractual agreements with a
freight broker, Alliance Transportation, Inc. (“Alliance”).1 As a condition
of federal registration under 49 U.S.C. § 13904, freight brokers must file with
the United States Secretary of Transportation a “bond, insurance policy, or
other type of security approved by the Secretary.” 49 U.S.C. §§ 13904,
13906(b) (2005).2 Federal Motor Carrier Safety Administration (“FMCSA”)
regulations specify that a broker may choose either to file a surety bond or
establish a trust fund of $10,000 to satisfy this security requirement. 49
C.F.R. § 387.307 (2008). In addition to providing the surety bond or trust
fund as security, brokers must file evidence of the security’s existence with
1 Owner-Operator is a non-profit trade association that appears in its
associational representative capacity.
2 The FMCSA granted Alliance authority to broker freight loads on
April 22, 2008, so we refer to statutes in effect at that time.
2
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
the Secretary using the FMCSA’s prescribed Form BMC 85 (“BMC 85
Form”). 49 C.F.R. § 387.307(b).
¶3 Alliance chose to provide the required $10,000 security by
way of a trust fund. Alliance and Appellee Pacific Financial Association,
Inc. (“Pacific”) executed a BMC 85 Form in April 2008 (the “Agreement”),
creating a trust fund (“Trust”). Pursuant to the express terms of the
Agreement, Alliance was Trustor and Pacific was Trustee. Motor carriers
who had contracted with Alliance and to whom Alliance was liable for
damages pursuant to the Agreement were the beneficiaries.
¶4 Alliance stopped paying motor carriers who had transported
freight pursuant to their contracts with Alliance in the fall of 2011. As of
October 19, 2011, the aggregate of unpaid claims against the Trust,
premised upon deliveries before that date, exceeded the $10,000 balance of
the Trust. Pacific did not notify any Trust beneficiaries that the security had
been exhausted, take steps to trigger Alliance’s duty to replenish the Trust,
or serve notice to terminate the Trust. In December 2011 and January 2012,
Appellants, with the exception of the Association, delivered loads entitling
them to payment from Alliance. These invoices were not paid, however,
and the carriers filed claims with Pacific against the Trust during January
and February 2012. Meanwhile, Alliance filed for bankruptcy protection on
January 11, 2012.
¶5 Pacific filed a notice of cancellation of the Trust with the
FMCSA on January 23, 2012, at least ninety-six days after Pacific knew that
the aggregate claims exceeded the $10,000 balance. The Trust was cancelled
on February 22, 2012. As of March 2012, Pacific had made no payments
from the Trust on pending claims.
¶6 Owner-Operator filed this action seeking declaratory relief,
injunctive relief, and damages. The complaint alleged that Pacific owed the
motor carriers, as beneficiaries, certain duties set forth in the Agreement; in
Arizona Revised Statutes (“A.R.S.”) sections 14-10801, 14-10802, 14-10803,
14-10811, 14-10813, and 14-10817; and by virtue of its “special relationship”
with the Appellants. It also alleged that Federal Service Corporation aided
and abetted Pacific’s tortious conduct and acted negligently by failing to
properly pay claims against the Trust.3 The complaint asserted claims for
3 Appellee Federal Service Corporation processes claims by shippers
and motor carriers against the BMC 85 trusts for which Pacific is trustee.
Unless otherwise noted, we refer to Pacific and Federal collectively as
“Appellees.”
3
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
breach of fiduciary duty, breach of the duty of good faith and fair dealing,
negligence, and aiding and abetting tortious conduct.
¶7 Appellees moved to dismiss the complaint under Rule
12(b)(6). Appellees argued that the Agreement was not a “trust” under
Arizona law and that, accordingly, Appellants were not “beneficiaries” and
were not owed any of the duties alleged in the complaint.4
¶8 The superior court dismissed the complaint on the grounds
that the Agreement did not create a “trust” under the Arizona Trust Code,
A.R.S. § 14-10101, et seq. (2015) (“Trust Code”).5 It found that the
Agreement was a “trust[] for the primary purpose of paying debts,” a
category of trust excluded from the Trust Code pursuant to A.R.S. § 14-
1201(58), and that “even if [the Agreement was] an ‘express trust,’ it [was]
not a ‘trust’ under A.R.S. § 14-1201(58).” Section 14-1201(58) provides that
while the definition of a trust includes an express trust, it excludes “security
arrangements, liquidation trusts and trusts for the primary purpose of paying
debts, dividends, interest, salaries, wages, profits, pensions or employee
benefits of any kind.” (emphasis added).
¶9 Owner-Operator filed a Motion for a New Trial and a Motion
to Amend Complaint to specifically assert claims based on Arizona
common law and the Trust Code. In their Joint Response, Appellees argued
that amendment would be futile because (1) the definition in A.R.S. § 14-
1201(58) expressly or by necessary implication supersedes any contrary
definition of what a trust is in Arizona, and (2) that the BMC 85 Form is not
a trust at all, but rather a contract for the payment of debt. The superior
court denied both motions “for the reasons stated in [Appellees’] Joint
Response” to the motions.
¶10 Appellees then filed an Application for an Award of
Attorneys’ Fees and Costs. The superior court awarded Appellees’
attorneys’ fees pursuant to A.R.S. § 12-341.01, stating “the claims asserted
4 While the Agreement was not attached to the complaint, but to the
motion to dismiss, the superior court did not need to convert the motion to
dismiss to a motion for summary judgment because the Agreement was
central to the complaint and all the parties were on notice of it. Strategic
Dev. & Constr., Inc. v. 7th & Roosevelt Partners, LLC, 224 Ariz. 60, 64, ¶ 14
(App. 2010) (citation and quotation omitted).
5 Unless amended in pertinent part after the underlying events, we
cite to the current version of any Arizona statutes.
4
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
by [Appellants] were based on agreements entered into by these parties and
thus ‘arose out of contract.’”
¶11 Owner-Operator timely appealed. We have jurisdiction
pursuant to A.R.S. § 12-2101(A)(1) and (A)(9) (2016).
DISCUSSION
¶12 Owner-Operator argues the superior court erred in
dismissing their claims alleging breach of fiduciary duty and negligence,
refusing to allow their claims to proceed under common law, and awarding
attorneys’ fees to Appellees.
I. Motion to Dismiss
¶13 We review dismissal of a complaint under Rule 12(b)(6) de
novo. Coleman v. City of Mesa, 230 Ariz. 352, 355, ¶ 7 (2012). We assume
the truth of all well-pled factual allegations in the complaint and all
reasonable inferences therefrom. Cullen v. Auto-Owners Ins. Co., 218 Ariz.
417, 419, ¶ 7 (2008) (citations omitted). We will affirm the dismissal only if
“as a matter of law . . . plaintiffs would not be entitled to relief under any
interpretation of the facts susceptible of proof.” Fid. Sec. Life Ins. Co. v. State
Dep’t of Ins., 191 Ariz. 222, 224, ¶ 4 (1998) (citation omitted).
¶14 “We review issues of statutory construction de novo.” Short v.
Dewald, 226 Ariz. 88, 93, ¶ 26 (App. 2010) (citation omitted). In construing
a statute, our goal is to give effect to the legislative intent, examining the
statute’s “individual provisions in the context of the entire statute to
achieve a consistent interpretation.” Id. at 93-94, ¶ 26 (citations and
quotation omitted). “[W]e look to the plain language as the most reliable
indicator of meaning.” Powers v. Carpenter, 203 Ariz. 116, 118, ¶ 9 (2002)
(citation omitted). When the language of a statute is clear and
unambiguous, a court should not look beyond the language, but rather
“simply apply it without using other means of construction, assuming that
the legislature has said what it means.” Hughes v. Jorgenson, 203 Ariz. 71, 73,
¶ 11 (2002) (citation and quotation omitted).
¶15 Owner-Operator argues that the Trust (1) is a federal
statutory trust that is not excluded from the Trust Code, and (2) is not a
“trust[] for the primary purpose of paying debts.” We disagree.
¶16 The Arizona Trust Code is located in Chapter 11 of Title 14 of
the Arizona Revised Statutes. Pursuant to A.R.S. § 14-10102, included
within the scope of the Trust Code are all trusts created pursuant to a
5
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
statute. However, as noted above, A.R.S. § 14-1201(58), found in Chapter 1
of Title 14, expressly provides that while the definition of a trust includes
an express trust, it excludes “security arrangements, liquidation trusts and
trusts for the primary purpose of paying debts, dividends, interest, salaries,
wages, profits, pensions or employee benefits of any kind.” (emphasis
added). Owner-Operator argues dismissal was improper because (1) the
Trust is a “statutory trust, mandated by federal law” and thus included
within § 14-10102, and (2) the Trust Code does not exclude such “federal
statutory trusts.” Thus, Owner-Operator contends the two sections can be
consistently read to permit the application of the Trust Code to any trusts
created pursuant to statute regardless of whether the trust is one to pay a
debt.6
¶17 Even assuming the Trust is a “trust[] created pursuant to a
statute,” we are unpersuaded by Appellants’ argument. The definitions
found in A.R.S. § 14-1201 apply to all of Title 14. A.R.S. § 14-1201 (“In this
title, unless the context otherwise requires . . . .”). The definition of “trust”
in § 14-1201(58) therefore applies to, and limits, the Trust Code, including §
14-10102. Thus, although the Trust Code includes “trusts created pursuant
to a statute” within its scope, any trusts excluded from the definition of
“trust” in § 14-1201 are also excluded from this category. Accordingly, even
if the Trust is a “trust[] created pursuant to a statute,” it is excluded from
the Trust Code if it is a security arrangement or a trust created primarily to
pay a debt under A.R.S. § 14-1201(58).
¶18 Owner-Operator also argues the court erred because the Trust
was not created “for the primary purpose of paying debts.” Owner-
Operator focuses on the language of A.R.S. § 14-1201(58) excluding
“liquidation trusts and trusts for the primary purpose of paying debts,
dividends, interest, salaries, wages, profits, pensions or employee benefits
of any kind” from the Trust Code. Owner-Operator contends that “trusts
for the primary purpose of paying debts” is not a standalone category, but
is limited to “liquidation trusts.” In the superior court, Owner-Operator
6 Appellees assert Owner-Operator never argued in the superior court
that the Trust was an express statutory trust and has thus waived this issue.
We find no waiver. While Owner-Operator did not refer to § 14-10102’s
inclusion of trusts created pursuant to a statute in responding to the motion
to dismiss, it did assert that the Trust was created pursuant to federal
statutes. Owner-Operator also argued that the Trust was created pursuant
to statute in its amended complaint and in its reply in support of its motion
to amend and for new trial.
6
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
contended that “liquidating trusts are indigenous to bankruptcy law; they
are designed for the primary purpose of liquidating a bankruptcy estate.”7
¶19 We disagree with Owner-Operator. We cannot read
“liquidation trusts and trusts for the primary purpose of paying debts” as
one category. Both clauses use the word “trusts,” thus indicating that the
Legislature intended the clauses to refer to different types of trusts, one for
liquidation trusts and the other for trusts with the primary purpose of
paying debts. Owner-Operator’s argument conflates the two types of
trusts, rendering the reference to trusts in each clause superfluous. We will
not read a statute in such a way as to render any of its language superfluous.
Thomas & King, Inc. v. City of Phoenix, 208 Ariz. 203, 206, ¶ 9 (App. 2004)
(citation omitted). Accordingly, we construe “trusts for the primary
purpose of paying debts” as a standalone exclusion from the definition of
“trust,” and therefore agree with the superior court’s interpretation of
A.R.S. § 14-1201.
¶20 We also agree with the superior court that the Trust’s primary
purpose was to pay debts. Looking to the express language of the
Agreement, Pacific’s duties were to “pay . . . directly to a shipper or motor
carrier any sum or sums which Trustee, in good faith, determines that the
Trustor has failed to pay”; “maintain a record of all financial transactions
concerning the Fund”; and “immediately give written notice to the FMCSA
of all lawsuits filed, judgments rendered, and payments made under this
trust agreement and of any failure by Trustor to replenish the trust fund as
required [by the Agreement].” Although Pacific also “may [have], within
its sole discretion, invest[ed] the funds comprising the corpus,” this was not
a mandatory obligation, as evidenced by the use of “may” rather than
“shall.” See Walter v. Wilkinson, 198 Ariz. 431, 432, ¶ 7 (App. 2000) (citations
omitted). Pacific’s mandatory obligations under the Agreement therefore
all were focused on the central obligation of paying debts; Pacific had to
make payments to qualifying shippers or carriers, and it had to notify the
7 On appeal, Owner-Operator also argues that the clause excluding
trusts for the primary purpose of paying debts was limited to employee-
benefit trusts under A.R.S. § 14-1201(58). We do not see how trusts
primarily for paying debts can be limited to employee-benefit trusts under
the statute. Both clauses refer to specific types of trust. Thus trusts for the
primary purpose of paying debts are independent of employee-benefit
trusts.
7
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
FMCSA if Alliance failed to maintain the minimum capital to allow it to do
so.
¶21 In arguing that the Trust’s purposes are broader than the
mere payment of debt, Owner-Operator refers to the Agreement’s
preamble8 and the history of 49 C.F.R. § 387.307.9 Those arguments are
unavailing, however, and actually support the conclusion that this kind of
trust is not included within the Trust Code. Both the preamble and 49
C.F.R. § 387.307’s history emphasize the importance of the required security
in providing financial security. Indeed, the I.C.C.10 decision cited by
Appellants refers to the I.C.C.’s initial discussion of the security
requirement, in which the I.C.C. clarified that “[a]uthorized property
brokers are required to provide financial security protecting the public . . .
against failure on their part to pay transportation charges incurred in carrying
out their contracts and agreements for the arranging of transportation by
motor carriers.” Clarification of Ins. Regulation, 3 I.C.C. 2d 689, 689-90
(I.C.C. Apr. 9, 1987).
¶22 After considering both the express terms of the Agreement
and 49 C.F.R. § 387.307’s regulatory history, we conclude that the primary
purpose of the Trust was ensuring and effectuating the payment of debts
and the Trust is essentially a security arrangement. As such, it is excluded
8 The preamble states that the Agreement “is written to assure
compliance by the Trustor as a licensed Property Broker of Transportation
by motor vehicle with 49 U.S.C. [§] 13906(b), and the rules and regulations
of the [FMCSA] relating to insurance or other security for the protection of
motor carriers or shippers.”
9 In which the Interstate Commerce Commission (“I.C.C.”)
acknowledges that “Congress’ primary purpose for regulating motor
transportation brokers has been to protect carriers and the travelling and
shipping public against dishonest and financially unstable middlemen in the
transportation industry.” Prop. Broker Sec. for the Prot. of the Pub. 49
C.F.R. Part 1043, 4 I.C.C. 2d 358, 358 (I.C.C. Mar. 14, 1988) corrected, Ex
Parte MC 5, 1988 WL 226071 (I.C.C. Mar. 14, 1988) and corrected sub nom.
Prop. Broker Sec. for the Prot. of the Pub. (I.C.C. Mar. 31, 1988) (emphasis
added).
10 The I.C.C. was terminated at the end of 1995. Many of its remaining
functions were transferred to the National Surface Transportation Board.
I.C.C. Termination Act of 1995, PL 104-88, Dec. 29, 1995, 109 Stat. 803; see 49
U.S.C. § 1302.
8
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
from the Trust Code pursuant to A.R.S. § 14-1201(58). Our conclusion is
further supported by our discussion infra, ¶¶ 28-30, that the Trust Code was
not intended to include commercial trusts such as the Trust here or to
abrogate common law actions for commercial trusts outside the Trust Code.
Accordingly, we find that the superior court properly dismissed
Appellants’ statutory claims under the Trust Code.
II. Refusal to Allow Appellants’ Claims to Proceed Under Common
Law
¶23 Appellants argue that the superior court erred by failing to
acknowledge that Appellants’ original complaint did not exclude common
law claims, or by refusing to permit them to amend their complaint to
explicitly allege such claims. We agree the superior court erred in denying
the motion to amend the complaint to assert common law claims.
¶24 When a motion to amend a pleading is denied, we review the
denial for an abuse of discretion. MacCollum v. Perkinson, 185 Ariz. 179, 185
(App. 1996) (citation omitted). Generally, denying leave to amend is an
abuse of discretion when a party “merely seeks to add a new legal theory.”
Id. (citation omitted). However, denial of a motion to amend is proper if
the amendment would be futile. Bishop v. State Dep’t of Corr., 172 Ariz. 472,
474-75 (App. 1992) (citation omitted).
¶25 In response to the motion to amend the complaint, Appellees
argued that the amendment would be futile because (1) the definition in
A.R.S. § 14-1201(58) expressly or by necessary implication supersedes any
contrary definition of what a trust is in Arizona, and (2) that the BMC 85
Form is not a trust at all, but rather a contract for the payment of debt.11 The
superior court denied the motion to amend for the reasons asserted by the
Appellees. Accordingly, we address both reasons relied on by the superior
court.
11 The original complaint did not expressly assert common law claims,
but only referenced federal statutes and the Trust Code. Accordingly, we
address on appeal whether the amended complaint stated a cause of action
if the Trust is a common law trust under Arizona law. We do not opine
whether the Trust fits into such a definition as that must await further
factual development on remand.
9
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
A. Section 14-1201(58) did not Abrogate the Common Law of
Trusts
¶26 Appellees argue that the definition of “trust” in A.R.S. § 14-
1201(58) either expressly or by necessary implication modifies the common
law such that certain instruments that might be called “trusts” are not
treated as actually being trusts under Arizona law. We disagree.
¶27 The common law, except when “repugnant to or inconsistent
with the constitution of the United States or the constitution or laws of this
state . . . is adopted and shall be the rule of decision in all courts of this
state.” 1907 Ariz. Sess. Laws, ch. 10, § 8, codified at A.R.S. § 1-201 (2002). To
change the common law by statute, the Legislature must do so expressly or
by necessary implication. Pleak v. Entrada Prop. Owners’ Ass’n, 207 Ariz. 418,
422, ¶ 12 (2004) (citations omitted). Absent a clear manifestation of
legislative intent to abrogate the common law, we interpret statutes with
“every intendment in favor of consistency with the common law.” Id.
(citation and quotation omitted).
¶28 Section 14-1201(58)’s definition of “trust” did not abrogate the
common law of trusts for trusts excluded from the Trust Code. First, A.R.S.
§ 14-1102(B)(4) explains that one of Title 14’s purposes is “to facilitate use
and enforcement of certain trusts.” A.R.S. § 14-1102(B)(4) (2016) (emphasis
added). This indicates that the provisions of Title 14, including the Trust
Code, apply to “certain trusts” but not to others, not that the common law
was abrogated as to trusts outside the scope of the Trust code.
¶29 This conclusion is further supported by two other sections of
Title 14. Section 14-1103 provides that “[u]nless displaced by the particular
provisions of this title, the principles of law and equity supplement its
provisions.” A.R.S. § 14-1103 (2016). Section 14-10106 states that “[t]he
common law of trusts and principles of equity supplement this chapter,
except to the extent modified by this chapter or another statute of this state.”
A.R.S. § 14-10106(A) (2016). In light of that language, the Legislature did
not clearly manifest an intent to abrogate the common law as it applied to
trusts excluded from the Trust Code.
¶30 We find further support for this conclusion from learned
treatises on the law of trusts. Sections 14-1201(58), 14-1103, and 14-10106
are based on the Uniform Probate Code (“UPC”) and the Uniform Trust
10
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
Code (“UTC”). See preface preceding A.R.S. §§ 14-1101 and 14-10101.12 As
the commentary to § 102 of the UTC explains, the language of which section
is identical to A.R.S. § 14-10102 dealing with the scope of the Trust Code,13
generally commercial trusts are not included in the UTC but are subject to
other pertinent laws on trusts:
The Uniform Trust Code is directed primarily at trusts that
arise in an estate planning or other donative context, but
express trusts can arise in other contexts. For example, a trust
created pursuant to a divorce action would be included, even
though such a trust is not donative but is created pursuant to
a bargained-for exchange. Commercial trusts come in
numerous forms, including trusts created pursuant to a state
business trust act and trusts created to administer specified
funds, such as to pay a pension or to manage pooled
investments. Commercial trusts are often subject to special-
12 Section 14-1201(58) is essentially identical to § 1-201(54) of the UPC,
which provides, in pertinent part, that the term “trust” for purposes of the
two codes excludes “custodial arrangements pursuant to [each state should
list its legislation, including that relating to [gifts] [transfers] to minors,
dealing with special custodial situations], business trusts providing for
certificates to be issued to beneficiaries, . . . security arrangements,
liquidation trusts, and trusts for the primary purpose of paying debts,
dividends, interest, salaries, wages, profits, pensions, or employee benefits
of any kind, and any arrangement under which a person is nominee or
escrowee for another.” UPC § 1-201(54) (amended 2010). Similarly, A.R.S.
§ 14-10106 is essentially identical to § 103 of the UPC, which provides that
“[u]nless displaced by the particular provision of this [Code], the principles
of law and equity supplement its provisions.” Id. 1-103. Finally, A.R.S. §
14-10106 is essentially identical to § 106 of the UTC with the latter providing
that “[t]he common law of trusts and principles of equity supplement this
[Code], except to the extent modified by this [Code] or another statute of
this State,” UTC § 106 (amended 2010), and the former providing that “[t]he
common law of trusts and principles of equity supplement this chapter,
except to the extent modified by this chapter or another statute of this state,”
A.R.S. § 14-10106(A).
13 Section 102 of the UTC and A.R.S. § 14-10102 both provide that the
code “applies to express trusts . . . and trusts created pursuant to a statute,
judgment or decree that requires the trust be administered in the manner of
an express trust.”
11
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
purpose legislation and case law, which in some respects
displace the usual rules stated in this Code.
UTC § 102 cmt. (amended 2010). The above commentary cites to one
leading commentator who has explained that commercial trusts, as
opposed to trusts based on gratuitous transfers of property, are ubiquitous
and the “familiar standards of trust fiduciary law protect trust beneficiaries
of all sorts, regardless of whether the trust implements a gift or a business
deal (unless, of course, the terms of the transaction expressly
contraindicate).” John H. Langbein, The Secret Life of Trusts: The Trust as an
Instrument of Commerce, 107 Yale L.J. 165, 166 (1997).14 Moreover, as the
reporter for the committee of the National Conference of Commissioners on
Uniform State Laws has stated, trusts “are increasingly being used as tools
for facilitating commercial transactions . . . [and t]he UTC is not directed
specifically at commercial trusts.” David M. English, The Uniform Trust
Code (2000): Significant Provisions and Policy Issues, 67 Mo. L. Rev. 143, 149
(2002). Rather, “[t]he extent to which commercial trusts will be subject to
the Code will depend on the type of trust and the laws, other than the UTC,
under which the trust was created.” Id.
¶31 Accordingly, we conclude that any trusts excluded from the
definition of “trust” in A.R.S. § 14-1201(58), like the Trust here, continue to
be guided by the principles of law and equity, including the common law
of trusts.
B. The Agreement is not a Contract for the Benefit of Third
Parties
¶32 Appellees argue that even if A.R.S. § 14-1201(58) does not
abrogate the common law as it applies to trusts excluded from the Trust
Code, the amendment to the complaint would still be futile because the
Trust is not a trust, but rather a contract for the payment of debt. We
disagree.
¶33 Arizona courts follow the Restatement of the Law unless the
Legislature or our courts have adopted a contrary rule. In re Naarden Tr.,
195 Ariz. 526, 528, ¶ 8 (App. 1999), as amended (June 16, 1999) (citation
14 As that same commentator notes, “one of the great attractions of the
trust for the transaction planner who is designing a business deal is the
convenience of being able to absorb these standards into the ground rules
for the deal, merely by invoking the trust label.” Langbein, The Secret Life
of Trusts, 107 Yale L.J. at 166.
12
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
omitted). The Restatement (Third) of Trusts distinguishes between a
contract and a trust:
When a person pays money to another with instructions that
the latter is to pay a debt or the debts of the former to one or
more third persons, it depends on the manifestation of intention
of the parties whether a trust or an agency or a different type
of contract is created. If the person receiving the money is
entitled to use it as his or her own, the transaction merely
creates a contract for the benefit of the payor’s creditor . . . . If
the person receiving the money is not entitled to use it for his or her
own purposes, a trust . . . is created.
Restatement (Third) of Trusts § 5 cmt. i (2003) (emphases added).
¶34 “[W]hen a trust is created by a written instrument, the
intention of the settlor is ascertained from the express language of the
instrument, and [a] court will not go outside the instrument in an attempt
to give effect to what it conceives to have been the actual intent or motive
of the settlor.” State ex rel. Goddard v. Coerver, 100 Ariz. 135, 141 (1966). Only
when a testator or other transferor fails to manifest an intention to impose
enforceable duties on the transferee is no trust created. Restatement (Third)
of Trusts § 13 (2003); see Lane Title & Tr. Co. v. Brannan, 103 Ariz. 272, 276-77
(1968) (citation omitted) (explaining that the essential elements of a trust
are: a competent settlor and a trustee; a clear and unequivocal intent to
create a trust; an ascertainable trust res; and sufficiently identifiable
beneficiaries).
¶35 The Agreement meets all of elements of a trust rather than a
mere contract. First, the Agreement is entitled the “Property Broker’s Trust
Fund Agreement Under 49 U.S.C. 13906 or Notice of Cancellation of the
Agreement.” (emphasis added).15 Throughout the Agreement, Pacific and
Alliance are referred to as “Trustee” and “Trustor,” respectively. By
signing the Agreement, Pacific “acknowledge[d] the receipt of . . . $10,000,
to be held in trust under the terms and conditions set forth herein.”
(emphasis added). The body of the Agreement imposes mandatory duties
15 Although use of the terms “trust” or “trustee” do not necessarily
indicate an intention to create a trust, evidence of Alliance and Pacific’s
intent to create a trust reaches beyond the mere use of these words. State ex
rel. Goddard, 100 Ariz. at 141-42.
13
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
on Pacific,16 and the Agreement “inure[s] to the benefit of any and all motor
carriers or shippers to whom the Trustor may be legally liable for any of the
damages . . . described [by the Agreement].” In addition, the Agreement
acknowledges the fiduciary relationship of trustor and trustee, specifying
that if Pacific decided to invest the fund comprising the trust corpus, it must
have done so “consistent with its fiduciary obligation under applicable
law.” Finally, Pacific was not entitled to use the funds comprising the trust
corpus for its own purposes: “any payments made pursuant to the security
provided [by the Agreement] will be made exclusively and directly to
shippers or motor carriers that are parties to contracts, agreements or
arrangements with Trustor [Alliance],” and “[a]ll sums due to [Pacific] as a
result, directly or indirectly, of the administration of the trust fund under
[the Agreement] shall be billed directly to Trustor and in no event shall said
sums be paid from the corpus of the trust fund herein established.” The
Agreement bears all the hallmarks of intent to create a trust rather than a
contract for the benefit of third parties.17
16 See supra ¶ 20.
17 Our conclusion is consistent with In re Naarden Trust, in which we
dealt with whether a complaint arising from an alleged breach of what was
an undisputed trust agreement arose out of contract for purposes of an
award of attorneys’ fees pursuant to A.R.S. § 12-341.01(A). In re Naarden
Tr., 195 Ariz at 528, ¶ 3. As we noted, a trustee’s duties may derive from the
trust instrument (as well as relevant statutes or common law), but they
initially stem from the special nature of the relation between trustee and
beneficiary. Id. at 530, ¶ 15. We explained that one difference between a
trust and a contract is that when property is transferred by one person to
another who agrees to assume a personal liability to a third person, the
agreement is a contract for the benefit of the third person and not a trust.
Id. at 529, ¶ 10 (quoting Restatement (Second) of Trusts § 14 cmt. f (1959)).
We also noted that “[t]he creation of a trust is conceived of as a conveyance
of the beneficial interest in the trust property rather than as a contract.” Id.
at ¶ 12 (quoting Restatement (Second) of Trusts § 197 cmt. b (1959)). Here,
the property—in the form of a $10,000 security—was not transferred to
Pacific to assume a personal liability to Owner-Operator and its members.
Rather, Pacific’s control of the property was to ensure that funds in the
corpus were adequate to make payments to Owner-Operator and its
members who had contracted with Alliance and to take steps to stop
Alliance from contracting in excess of the security. It was only if Pacific
failed to take such steps that Pacific could be liable for the amounts Alliance
14
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
¶36 Because we find that (1) A.R.S. § 14-1201(58) does not
“modify” the common law as to trusts excluded from the Trust Code and
(2) the Agreement is at least evidence of the creation of a trust, rather than
a contract for the benefit of a third party, we determine that Owner-
Operator’s proposed amendment of the complaint would not have been
futile. Accordingly, we reverse the superior court’s denial of Owner-
Operator’s motion to amend the complaint to assert common law causes of
action.
III. Award of Attorneys’ Fees
¶37 Owner-Operator also contends that the superior court erred
in awarding Appellees’ attorneys’ fees pursuant to A.R.S. §§ 12-341 and 12-
341.01 because the dispute did not arise out of contract. We agree.
¶38 We review the superior court’s award of attorneys’ fees and
costs for an abuse of discretion. Charles I. Friedman, P.C. v. Microsoft Corp.,
213 Ariz. 344, 350, ¶ 17 (App. 2006) (citation omitted). We will uphold the
court’s award of attorneys’ fees and costs if it has “any reasonable basis.”
State Farm Mut. Auto. Ins. Co. v. Arrington, 192 Ariz. 255, 261, ¶ 27 (App.
1998) (citations omitted).
¶39 “[T]he undertaking between the settlor and trustee is not
properly characterized as contractual and does not stem from the premise
of mutual assent to an exchange of promises.” In re Naarden Tr., 195 Ariz.
at 530, ¶ 15. “Although the trustee’s duties may derive from the trust
instrument (as well as relevant statutes or common law), they initially stem
from the special nature of the relation between trustee and beneficiary.” Id.
A trustee’s undertakings or promises in a trust instrument are therefore not
normally “contractual,” and suits that arise out of a trust relationship are
not suits arising out of a contract for purposes of A.R.S. § 12-341.01(A). Id.
at ¶ 18. Because Appellants’ claims arise out of the trust relationship rather
than out of contract, we conclude the superior court erred in awarding
attorneys’ fees pursuant to A.R.S. § 12-341.01(A).
owed to Owner-Operator and its members.
The parties’ reliance on In re Arctic Express Inc., 636 F.3d 781 (6th Cir.
2011), is misplaced. In Arctic Express, the court was dealing with whether
amounts kept in certain bank accounts by a carrier were held in trust by the
bank for lessees who had leased trucks from the carrier. Id. at 785-86. The
issue did not involve BMC 85 Form trusts and thus is not dispositive of the
issue here.
15
OWNER-OPERATOR et al. v. PACIFIC et al.
Opinion of the Court
CONCLUSION
¶40 For the reasons stated, we affirm the superior court’s
dismissal of Owner-Operator’s statutory claims under the Trust Code but
remand to allow Owner-Operator to assert common law claims of breach
of fiduciary duty and negligence. We also reverse the superior court’s
award of attorneys’ fees pursuant to A.R.S. § 12-341.01. We deny Appellees’
request for attorneys’ fees and costs on appeal. Upon timely compliance
with Arizona Rule of Civil Appellate Procedure 21, we will award Owner-
Operator its taxable costs on appeal.
AMY M. WOOD • Clerk of the Court
FILED: AA
16